Japanese Banks’ Asia Apparitions
A decade after pulling back on heavy regional crisis losses, major Japanese banks are back in force with double-digit expansion in regional syndicated loans replacing European backers, despite their own credit downgrades on domestic portfolio pressures. Mitsubishi, Mizuho and SFMG have been matched on the securities side by big houses like Daiwa and Nomura, and retail investment trusts that have poured $60 billion into emerging market hard and local currency bonds worldwide mainly in Brazil. Separate overlay funds have involved plays on the real, rupiah, lira and other units and the giant government pension system with $1.5 trillion in assets plans dedicated product allocation to emerging market equities for its conservative saver base. The Japanese Bank for International Cooperation has itself gotten into capital markets with a guarantee program for yen-denominated “samurai” debt issuance alongside its traditional role supporting direct investment and exports in developing economies, where the geographic emphasis has shifted to Africa and newer destinations. In Asian infrastructure and project finance only HSBC and Standard Chartered from the UK have arranged more and their positions may now be in jeopardy from the Eurozone crisis spillover and violations of Iran and money-laundering guidelines found by US regulators and under investigation in other jurisdictions. These directions take shape as loan growth at home barely budges with 2 percent GDP growth again in the cards as post-reconstruction spending wears off a year after the earthquake-tsunami. The outlays were underwritten by special bonds, but with gross public debt topping 200 percent of GDP Prime Minister Noda won opposition acquiescence to a gradual rise in sales tax in return for elections likely to be scheduled soon after Tokyo hosts the annual IMF-World Bank gathering next month. The Liberal Democrat Party is widely predicted to return to power on incumbent dissatisfaction, as the ruling DPJ itself splinters on fiscal and personality differences. The massive government debt poses large financial system risks, according to the central bank and IMF, which each pointed out the solvency and valuation impacts of minor basis point swings. Foreign ownership has likewise jumped to over 8 percent of the $13 trillion total across the yield curve as other developed market returns are paltry and yen appreciation remains intact.
The 2011 US Treasury cross-border securities survey showed $125 billion going into short and long-term holdings, quadruple the amount of next-ranking neighbor South Korea. There industrial exports have slumped and Samsung in addition took a huge stock market blow on losing a phone copyright case to Apple. Privatization has been suspended on poor appetite and deal controversies heading into December presidential elections, with household debt of 150 percent of GDP weighing on voters. Their attention has been diverted as well by a historic dispute with Japan over an island chain which has yoked burgeoning commercial alliances with nationalist sentiment.
